Wage Wars

Mike Hofman was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City.

An employee who makes $35,000 a year might think that's a great salary. But if he learns that a peer makes $40,000, suddenly he's an Upton Sinclair character. CEOs who don't realize that employees' salary expectations are fluid may be blindsided by unexpected defections. Put simply, managing those perceptions is a critical task for a leader.

Nicole Geller is founder of GCS Inc., a $4-million company based in McLean, Va., that specializes in placing contract and finance professionals. When it comes to tracking employee satisfaction vis-à-vis salary, Geller employs three key rules:

All news is good news. Regularly ask employees if they're OK, and don't be afraid of negative responses, Geller says. She maintains a steady schedule of off-site meetings with her employees. Over lunch or coffee, she pumps them for information. "I find that employees who are well paid will give you a heads up when another employee is unhappy," she explains. When confronting a malcontent, Geller finds that saying little is the best policy. "Getting employees to get real honest is a challenge," she explains. "It's very important that you listen to them without getting defensive."

Use numbers to defend salary levels. Geller suggests that you base all salaries on a tangible measurement of some kind. "Salary here is tied to performance expectations," she explains. With the exception of cost-of-living adjustments, "we do not bump up a person's salary unless they commit to higher expectations. We recently had a case where someone felt underpaid next to their peer, but the sales expectations were less for the unhappy person. We offered to adjust their salary based on higher performance expectations. The person declined that offer and stayed at the same compensation rate."

Open the books. Geller believes that if employees understand GCS's financials, they're likely to have both a greater stake in the company and a better understanding of how quickly they can reasonably expect salaries to rise. "The best way to explain a new bonus structure is to show how the company's overhead works. The more our employees know about how a business works, the less they think that it is a cash cow," she says. "For example, a profit-sharing plan might be less lucrative year after year if overhead and benefits increase."

None of these practices is particularly easy. But Geller says the time and effort are worthwhile. "Directness is the best approach from both the employers' and the employees' point of view," she concludes.